Federal judge backs Obamacare subsidies in win for administration

Dismisses challenge to Affordable Care Act’s tax credits

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A federal judge ruled Wednesday that the administration can pay subsidies to all deserving Obamacare enrollees, no matter who runs the exchanges they enrolled in — delivering a significant win to President Obama and preventing opponents from poking a major hole in his signature law.

U.S. District Court Judge Paul L. Friedman, presiding in Washington, dismissed a challenge to the Affordable Care Act’s tax credits, saying that the law doesn’t distinguish between states that are running their own health markets and states that ceded that responsibility to the federal government.


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The ruling means millions of Americans can still collect taxpayer subsidies to help them buy insurance — a key element to making the new law work.

“In sum, the court finds that the plain text of the statute, the statutory structure, and the statutory purpose make clear that Congress intended to make premium tax credits available on both state-run and federally-facilitated exchanges,” Judge Friedman wrote in his opinion. “What little relevant legislative history exists further supports this conclusion and certainly — despite plaintiffs’ best efforts to suggest otherwise — it does not undermine it.”

An attorney for plaintiffs in the case, Halbig v. Sebelius, immediately notified the court they will appeal his decision.

“The court’s ruling today delivers a major blow to the states that chose not to participate in the Obamacare insurance exchange program,” said Sam Kazman, general counsel for the Competitive Enterprise Institute, which coordinated the lawsuit. “It is also a blow to the small businesses, employees and individuals who live in those states as well. In upholding this IRS regulation that is contrary to the law enacted by Congress, this decision guts the choice made by a majority of the states to stay out of the exchange program.”

The exchanges, launched in October, are a crucial piece of President Obama’s reforms that allow people on the individual market to compare plans and qualify for income-based subsidies to defray the costs of coverage. Thirty-four states decided to let the federal government run their health exchanges, while 16 states and the District of Columbia decided to operate their markets on their own.

The health law says the subsidies are available to those who sign up in exchanges “established by the state.” The plaintiffs — several businesses and individuals — said that should exclude those who sign up on the federal exchange, which covers all the states that refused to create their own exchanges.

The administration said it made no sense for Congress to exclude those in the federal exchange. But the plaintiffs argued the law’s authors wanted to use the subsidies as bait to get states to take responsibility for their respective exchanges.

Judge Friedman said there was no evidence Congress intended that distinction.

Timothy Jost, a health policy expert at Washington and Lee University School of Law, said the plaintiffs’ argument “made no sense from the beginning.”

Congress clearly did not mean to exclude residents of two-thirds of the states from premium tax credits,” he said. “Judge Friedman had little trouble finding that the statute clearly authorizes premium tax credits to be granted through federal exchanges … His reasoning is persuasive, and will be upheld by the appellate court.”
Other legal experts were even more dismissive of the case.

“This definitely was the right decision,” said Abigail Moncrieff, a professor at Boston University School of Law. “This case is pure silliness.”

But Michael Cannon, a health policy director at the Cato Institute in Washington who developed the legal theory against the IRS rule, said Wednesday’s ruling “will not be the last word.”

“Halbig and its companion cases concern whether the IRS can impose a tax when doing so is the exact opposite of what the law permits the agency to do,” he said. “Incredibly, a federal court has ruled the answer is yes.”

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